Directors of Rusty Pelican Restaurants Inc. ended a seven-month search for financial aid Wednesday, unanimously approving a $25.4-million cash buyout offer from San Diego-based Vicorp Specialty Restaurants Inc.
If approved by Rusty Pelican shareholders, VSR--a privately held operator of 83 dinner houses--will pay $9 per share for the 2.8 million shares outstanding of Rusty Pelican common stock.
VSR also will assume $18.7 million in long-term debt and capitalized leases of the 21-unit, Irvine-based chain.
Neither company would say much about the deal, but Wall Street reacted enthusiastically Wednesday with Rusty Pelican closing at $8.50 in over-the-counter trading, up $1.50 for the day.
The deal grew out of a hunt by Rusty Pelican's investment banker for a way to cure the company's financial problems.
But two individual investors contacted Wednesday said they were displeased with the agreement, calling it an attempt by VSR to steal away the company at a bargain-basement price.
"I would be much happier if (the offer) were over $10 (per share). I've always felt it would go for over $12," said Edward P. Grace III of East Providence, R.I.
Grace, Rusty Pelican's second largest shareholder with 7.2% of the company's shares, threatened his own takeover attempt late last year but later made peace with the chain's management.
Another investor, who asked not to be named, suggested that the offer so undervalues Pelican that other bids at a better price are a strong possibility. "Shareholders possibly will accept (Vicorp's) offer if a higher bid doesn't emerge, but it won't be with a smile on their faces," the investor said.
Michael G. Mueller, an industry analyst with Montgomery Securities in San Francisco, suggested that the deal will help Rusty Pelican, which has had significant financial problems in recent years, because VSR's experienced management team will be successful in the competitive dinner-house business.
"This isn't the easiest business to run and it takes a certain kind of company to succeed," Mueller said.
While VSR already has a heavy debt load, Mueller said, it also has "a solid cash flow and a very strong management team."
Mueller unintentionally bolstered the arguments of disgruntled shareholders, however, describing the proposed merger as "opportunistic because it sounds like they bought it for an attractive price."
But Greg Dollarhyde, Rusty Pelican's chief financial officer, defended the $9-per-share price, noting that it nets shareholders a 28% premium over Tuesday's closing price. "If somebody thinks it should go for $10, either he knows something we don't or he should come forward to pay $10" per share, he said.
Alex Brown & Co., Rusty Pelican's investment banker, has said that it believes $9 per share is a fair price, Dollarhyde said.
The company is willing to sell, he said, because "it's the best way to maximize shareholder value at this time." He cited the tough competitive environment in general for dinner-house trade, as well as Rusty Pelican's own lackluster-to-abysmal performance over the last several years.
Since its founding 23 years ago by Louis (Pete) Siracusa, a former Newport Beach lifeguard, the seafood chain has gone from posting the highest average annual sales per unit of any restaurant chain in the United States--$3.68 million in 1985--to near-disastrous results last year.
The company's stock traded for as much as $15.375 a share in 1986, but by year's end had been weakened by competition, sluggish alcohol sales and poor results at some units.
It closed its 1986 fiscal year, ended Aug. 3, with a $256,000 loss, despite record sales for the year of $59.8 million.
By May, however, the chain seemed to be turning around when it reported net earnings of $261,000 for the third quarter of its fiscal 1987, contrasted with a loss of $512,000 for the period a year earlier. The results marked the company's first positive earnings comparison since July, 1985.
'Expect to Be Profitable'
On Wednesday, Dollarhyde--as well as the investors who criticized the VSR offer--said the Rusty Pelican chain should continue operating in the black and performing reasonably well. But Dollarhyde noted that analysts estimate earnings this year at only 25 cents per share. "We expect to be profitable, but we're still not where we want to be." In November, the company retained Alex Brown to "review our options," Dollarhyde said, and the Vicorp merger proposal resulted.
Rusty Pelican operates 21 restaurants in seven states, including 12 in California. The restaurants operate under the names Rusty Pelican, Ancient Mariner and Rusty Duck.
VSR operates specialty dinner houses in 11 states under the chain names of Hungry Hunter, Mountain Jack's, Boathouse, Monterey Whaling Co., the Dock, and Carlos Murphy's.
The company began in 1967 as San Diego Restaurant Operations and was later acquired by Ralston Purina. In 1984, it was sold again, to Denver-based Vicorp Restaurants, and was renamed Vicorp Specialty Restaurants.